ECB Is the solution to the serious problem of Spanish debt ? ~ Manage Your Loan

Wednesday, September 25, 2013

ECB Is the solution to the serious problem of Spanish debt ?

 In recent months, Spain has had to finance in the market at an unaffordable rate for any state. With a risk premium shot , it seemed that the only solution was for the ECB to buy the sovereign debt of our country to relieve tension in the markets and , thus , allow some respite from the public accounts. The ECB has bought Spanish debt as bonds and has provided liquidity to banks at an interest rate that now stands at 0.75 % in order to allow companies to invest and thus cheap revive the economy but how can this be sustainable over time ?

The answer is yes , yet is not . Let me explain . The solution would be to eliminate much of the debt they have accumulated by countries and deleveraging of all households and businesses . The problem is that this is not easy or quick input and requires a process that can be ( and in fact is being ) very painful , because it requires both companies and the state cut spending wildly or disposing part of its assets in the market to increase liquidity and to respond to your creditors .

To deal with these situations , the ECB has instruments to channel funds to the treasury of the United and banks. Monetary policy in this regard is to increase the money supply ( " give the crank to make money " ) , lowering interest rates and injecting liquidity into the system . In a situation of serious debt problems this can be the solution if we see that there can be a certain level of inflation but, above all, if these funds are properly channeled into the real economy , which is not happening.

Furthermore, the ECB carried out these policies with the aim of easing the huge debt tensions with which they are having to deal all governments and thus gain valuable time to undertake the necessary reforms. The problem is that these settings are not being carried out as quickly as required now. Remember that countries like Italy have received a proportion of injections by the ECB and have already relaxed their tension on the markets being able to see if this country end adjustments even next year , the only difference with Spain has been making adjustments in the time required .

With the markets closed , the only viable option for Spain today will be the rescue. But the recovery will require a series of conditions and counterparties by the Community authorities (the famous black men ) that will make the adjustment is slow and painful but ultimately will pay off . Cleaning up the banks and reduce debt, especially private , must be priorities of the Government of Mariano Rajoy. Otherwise , the solution is overkill and we will have an increasingly poor population and political abuse victim . And although it says otherwise , this bailout will be paid by all taxpayers pocket .

To summarize and answer the question in the title of the article: the answer is yes, but because there is no alternative , even though I am totally against it.


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